Session Begins with Grim Budget News
The 2012 Regular Session of the Alabama Legislature started with news that everyone already knew- our General Fund is broke. While this is not a shock to many of us who work on a day-to-day basis in Montgomery, what was an eye opener is how bad the budget really is.
In 2008, the State General Fund had a total appropriation of $1.83 Billion. For 2013, it appears that the General Fund will only have $1.3 Billion. This is an incredible drop in for a budget that funds some of the state’s most critical services. Due to poor public policy Medicaid and prisons will for the first consume more than 50% of the General Fund budget in 2013. Grappling the prison overcrowding problem this session is going to be critical in order to reverse this trend. With little left to cut in both Medicaid and prisons, the bulk of the budget crunch will fall heavily on the rest of state government. Parks, roads, public safety, public and mental health services will be in dire straits in the next budget year.
Many rightfully ask ‘why the steep decline in revenue for the General Fund?’ Well the correct answer basically goes back to how that budget is funded. Through a series of low growth revenue sources such as Insurance Premium taxes, Oil & Gas taxes, Cigarette taxes and interest money from state deposits, the General Fund has always survived on a piece meal fund stream. The largest drop in revenue has occurred as a result of low interest rates. When interest rates represent your second largest source of income to fund general services are combined an economic recession that is results in record low interest rates, you have the formula for a perfect storm.
Multiple solutions to this problem have been mentioned by both the Bentley administration and certain members of the legislature. Expect all of these ideas to be hotly debated over the next few months. While the idea of new revenue is almost certainly a non-starter, there are some who continue to push the notion of a tobacco tax. The deadest idea of the session was the plan to divert monies from the Education Trust Fund Budget to shore up shortfalls in the General Fund. This was actually recommended in the budget submitted by the Governor during the State of the State Address. That faced immediate blowback from legislators in both parties and likely will not be brought up again this session. In the end, drastic cuts will most likely be in store for every agency funded by the General Fund. While it won’t be pleasant in the end state overnment will have to live within its means.
